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TMI Blog2021 (11) TMI 1008X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act. Hence, it is necessary to construe the expression Members in section 80P(2)(a)(i) of the Act in the light of definition of that expression as contained in the concerned co-operative societies Act. In view of this, the facts are to be examined in the light of principles laid down by the Hon ble Supreme Court in Mavilayi Service Cooperative Bank Ltd. (supra). Accordingly, we remit this issue of deduction u/s.80P(2)(a)(i) of the Act to the file of Ld.AO to examine the same de novo in the light of the above judgment. - ITA. No. 1306/Bang/2019 - - - Dated:- 8-10-2021 - Shri B.R. Baskaran, Accountant Member And Smt Beena Pillai, Judicial Member For the Assessee : Shri Mahesh R. Uppin, Advocate For the Revenue : Shri Priyadarshi Mishra, Addl. CIT.(DR) ORDER PER BEENA PILLAI, JM. Present appeals are filed by the assessee against the common order dated 14/03/2019 passed by the Ld. CIT(A) Mangaluru for assessment year 2016-17 on the following grounds: The Appellant above named begs to submit as follows in addition to such other grounds that may be urged at the time of hearing 1) The impugned order of both the below authorities are not speaking or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same. The said citation of - Totgars Co-op. Sale Society Ltd. relied upon by the Respondent is inapplicable to the appellant's case. It is submitted that in Totgars Co-op. Sale Society Ltd., the Hon'ble Apex Court as well as the Hon'ble High Court of Karnataka have upheld the cases of Revenue duly observing that - Totgars Co-op. Sale Society was engaged in numerous activities and the interest income derived by the said society was out of the investments of debts owed to its members (sundry creditors) which could not be considered as income attributable to its business of providing credit facilities. Therefore, it is submitted that the decision rendered in the said case relied upon by both the below authorities is clearly distinguishable. The Appellant submits, interest on the investments derived by it amounting to ₹ 20,16,078/- and brought under tax Lis. 56 of the Act by the Respondent was incidental to appellant's business of providing credit facilities to its members and attributable to its Business Income u/s. 28 of the Act and qualifies for deduction u/s. 80P (2)(a)(i) of the Act as per the observation under Para 21 of the decision in Totagars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vail. The definition of 'Member' given under Sec. 2 (f) of Karnataka Co-operative Societies Act, 1959 also includes a Nominal and an Associate Member. The Bye-laws of the appellant also provide for transacting with nominal and associate members. Therefore, the transactions of the appellant fall well within the frame work of law. Further, Income Tax Act has not drawn any distinction between regular member and nominal or associate member. Therefore, the transactions done with nominal or associate member cannot be considered as the one with non-members or public for depriving the Appellant from the benefit of exemption u/s. 80P of the Act as held by ITAT, Ahmedabad in ITA No. 1328/2018 in the case of- Trapaj Vibhageeya Khet Udyog Mal Rupantar Food Processing Sahakari Mandali Ltd. Ahmedabad Vs. DCIT, Cir. 2, Bhavnagar. Apart from this, the case of the appellant is also covered by the decision of Hon'ble High Court of Karnataka rendered on in ITA: 32/2014 - The Commissioner or Income Tax vs. The Karnataka State Co-operative Housing Federation Ltd. wherein it was clearly held that a nominal member is covered under the definition of a member and in order to attract the be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 143(2) was issued to assessee. In response to the statutory notices, representative of assessee appeared before the Ld.AO and filed requisite details as called for. 3. Ld.AO from the details filed observed that: (i) has earned rental income and the entire amount was claimed as exemption under section 80 P (ii) assessee has earned interest on investment in Co-operative banks, nationalised banks and dividends; (ii) assessee has claimed deduction under section 80P(2)(a) of the act in respect of amount of profit attributable to the activity of providing credit facilities to its members. 4. In the instant case, it was noticed by the Ld.AO during assessment proceedings, that the assessee society was earning income not only from the members but majority of the income from the nominal/ Associate members. Taking into cognizance the ratio of decision of Hon ble Supreme Court, in the case of Citizen Co-op Society Ltd, Hyderabad v. ACIT, C-9(1), Hyderabad in Civil Appeal No.10245 of 2017 dated 8.08.2017 the Ld.AO denied deduction claimed u/s.80P by holding that the asessee provided credit facilities to three categories of members viz., i) Regular member ii) Associate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus upheld the order of Ld.AO. Aggrieved by the order of Ld. CIT(A) assessee is in appeal before us now. 7. We have considered the rival submissions of both sides in the light of records placed before us. 7.1 The issue that arises for consideration is: (i) whether the authorities below were justified in denying the claim of the assessee for deduction u/s 80P(2)(a)(i) of the Act. (ii) whether, interest income earned by assessee is eligible for deduction u/s 80P(2)(d) of the Act, whereas the deduction is one claimed u/s 80P(2)(a)(i) of the Act. 8. Ground No.1-3 are general in nature and therefore do not require any adjudication. 9. Ground No.4 is in respect of interest from investment in Co-operative banks, nationalised banks. 9.1. This issue has been decided by coordinate bench of this Tribunal in case of Potters Cottage Industrial Co-Operative Society Ltd., for assessment years 2015-16 in ITA No 1257 1258/Bang/2019 by order dated 30-08-2019. This Tribunal observed and decided as under: We note that the Ld.AO denied deduction under section 80P(2)(d) of the Act, as well in respect of interest income received by assessee from deposits kept with banks f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. Hon ble Karnataka Court distinguished the facts in the decision of the Hon ble Supreme Court in the case of Totgars (supra) by observing that Hon ble Supreme Court was dealing with a case where the assessee-cooperative society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee-Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the or under Section 80P(2)(a)(iii) of the Act. Therefore, in the facts of Totgars (supra), Hon ble Supreme Court held the assessing officer was right in taxing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s invested in co-operative societies. Therefore, to the extent of the interest earned from investments made by assessee with any co-operative society, a co-operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. This needs to be verified by the Ld.AO. On the basis of above discussions, and in the interest of Justice we remand this issue back to the Ld.AO to verify the interest earned from investments made in co-operative societies that is eligible for deduction under section 80P(2)(d) of the Act. 9.2. Respectfully following the above view, we direct the Ld.AO to verify the interest earned on investment earned from co-operative societies and to consider the claim of assessee in accordance with law under section 80P(2)(d) of the Act. 9.3. Accordingly these grounds raised by assessee stands allowed for statistical purposes. 10. Grounds 5 -7: In respect of associate/nominal members, Hon ble Supreme Court in the case of Mavilayi Service Cooperative Bank Ltd. v. CIT (2021) 123 taxmann.com 161 (SC) has held that the expression Members is not defined in the Income-tax Act. Hence, it is necessary to construe the express ..... X X X X Extracts X X X X X X X X Extracts X X X X
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